Payment Processing – There’s an App for That

For those of us over the age of 25, we remember a time when carrying cash was a requirement for everyday purchases since many businesses did not accept credit cards. People who used plastic often saved it for big purchases or when they needed a little extra time to come up with the money.

In the last decade, however, consumer behavior has shifted towards the use of credit (and now debit) cards for everyday small purchases. It is not uncommon at all to see people at Starbucks or the grocery store use a credit card for receipts under $10. As more and more locations begin taking credit and debit cards, fewer people are walking around with cash in their pockets.

Because of this shift towards electronic payments, a few creative entrepreneurs have developed new methods in which merchants and individuals can accept payments right from their smartphones. One of the more popular devices is called Square Up, which was developed by the co-founder of Twitter, Jack Dorsey.

Square is unique in the payment-processing world because it is very simple to use and comes with no contract or additional costs besides a modest transaction fee. Currently, for swiped cards the fee is 2.75% of the total transaction amount.

When signing up for Square, an individual or merchant is sent a small device that plugs into the headphone jack of either their iPhone or Android-based mobile phone. A companion app, which can be downloaded for free on either device, works with the swiper to process the payment. If the card will not or cannot be swiped, the app can accept keyed in cards, at an additional cost.

Besides the obvious applications for small businesses, Square is also a pioneer in individual-to-individual digital payments. Since you do not need to have a business in order to sign up for Square, almost anyone (with good credit) can accept credit and debit card payments from someone else. While this is not exactly mainstream at the moment, it surely is a glimpse into the direction we are heading with digital payments.

On the flip side, Google has partnered with Citibank to create Google Wallet. This new co-branded product will turn specific Android-based smartphones into mobile payment methods. The phones have a Near Field Communication (NFC) device embedded in the body, which is linked to a Citibank credit card account. When consumers are at participating merchants that accept NFC payments, they will simply be able to swipe their phone in front of the receiver and be on their way.

There is no question that payment processing has been moving quickly over the last few years and will continue to change as smart phone technology advances. It will not be long when a traditional wallet is obsolete and people can carry their entire history with them in their phones. The only problem will be finding a new spot to carry a spare key.


Eric Stauffer is part of a merchant services consulting firm called Card Payment Options, which specializes in assisting small and medium-sized businesses at selecting reputable and affordable credit card processing companies.

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